About Currency Currents

With Currency Currents, you can stay tuned-in to our current global-macro view and our analysis of key investment themes driving currency prices.

We consistently focus on the key asset classes responsible for the flow of global capital -- including equities, fixed income, commodities and, of course, currencies.

Nothing is off limits to us in this free-wheeling look at the markets. Some days you’ll receive ramblings on trading psychology, while other days we may take an academic approach in explaining esoteric economic issues. Ultimately we have one goal in mind: to help you get a handle on the key investment themes driving global capital flow. Because if you know where the money is going, it increases the probability that your position in the market will be a profitable one.

Who is Jack the Pipper?

Jack is founder and president of Black Swan Capital LLC. He has also
operated a discretionary money management firm specializing in global
stock, bond, and currency asset management for retail clients. In
addition, he was general partner in a firm specializing in currency
futures and commodities trading. Neither firm is now in operation.

Prior to entering the investment arena, Jack worked in various
corporate finance positions. He has written extensively on the subject
of global currencies and international economics.

A new twist on The China Syndrome

Asian currencies such as the South Korean won and the Taiwan dollar rose on Thursday as China’s robust first-quarter economic growth boosted demand for regional stocks and other riskier assets. (Reuters)

Many advanced economies will face high unemployment through 2011 even though job growth will return this year, the International Monetary Fund said on Wednesday. In its initial chapters of the World Economic Outlook, the IMF said combating unemployment was a key policy challenge as the global economy emerges from the worst recession since World War Two. It will release the full report next week. (Reuters)

Quotable – On Greek debt

“Force is not a remedy.”

John Bright

FX Trading – A new twist on The China Syndrome

First, "Do not let the yuan’s exchange rate issue become the scapegoat of U.S. domestic economic problems, including their unemployment," said a Chinese Ministry of Commerce spokesperson.

Sounds like a common political strategy to me: if you can’t defend your reasons for doing something (specifically the consequences of such actions), then just go on the offensive and deflect.

From the Financial Times yesterday …

Although putting the renminbi on the back-burner serves the interests of both Washington and Beijing, the world’s response to the debate suggests the dangers of such brinksmanship. America received almost no support for its tough stance, save for some mild words of rebuke from Dominique Strauss-Kahn, the managing director of the International Monetary Fund, and a soft joint letter of protest from five leaders of the Group of 20. There was a deafening silence from Japan and South Korea, both of which have massive investments in China. Their most powerful companies’ profits are linked to China’s export success, which a stronger renminbi would undermine.

…

China’s dilemma is that, like Bismarck’s Germany, it surpasses in power all its neighbours combined (save for Russia with respect to its nuclear arsenal). To avoid the fate of the Second Reich, China must recognise and publicly accept that it is no longer a developing country but a global power with responsibilities that extend beyond its immediate national interests. It will need to explain its actions and factor other countries’ interests into its policies.

The dispute over the renminbi is a wake-up call for Beijing. But pulling back from the brink with the US is not enough. Nor can China rely on Asia’s "great chain of production" providing it with a secure and stable region. As with the Asian crisis of 1997, when China shunned beggar-thy-neighbour currency policies, what is needed above all is a commitment to neighbourly multilateralism.

Ok, I’ll stop there.

A bit of sweet data out of China – year-over-year growth sped to 11.9% for the first quarter while March revealed China’s first monthly trade deficit since the 2004.

What’s interesting is that the Chinese Ministry of Commerce guy I quoted above seems a bit disturbed by China’s small trade deficit in March, specifically the export side. He notes that Chinese domestic demand is outpacing the global recovery. I mean, how many analysts and economists made it clear that the Chinese consumer needed to play a bigger role, that there was nothing wrong with China running some trade deficits. After all, isn’t the latest measure of growth sitting at 11.9%?

Still, China seems hung up on exports. But why?

Maybe they simply don’t want to buy more from the US than they sell to the US … for the sole reason that it is the US.

It shouldn’t be surprising that things are getting personal; China is out for world domination. The political views there certainly haven’t aligned with those in the US and many other places in the world. But China has taken steps to see that their economy is more aligned with global dealings.

Their economy holds the key in overtaking the United States’ status as world superpower. It shouldn’t be surprising if things start to get personal. We in the US are learning first-hand what it’s like when politicians implement a personal agenda.

Then again, maybe I’m just getting too personal.

For now, the risks seem to be on the back-burner. US stocks had a big day yesterday, so they may need to take it easy today. But I’d guess that the markets take kindly to this data out of China.

The European Central Bank reads our stuff?

Long for the days to have as much influence as a Financial Times article, I do.

This piece — ECB warns of global imbalances threat — was enough to knock the euro back by more than 100 pips to the US dollar so far today, despite the fact that the story is not new; we’ve been making such remarks for several months now.

In unusually blunt language, the ECB has made clear its fear that governments are not doing enough to put the global economy back on a sustainable growth path – despite international policy initiatives in the past year.

And maybe today’s sharp move to the downside brought out the bearish analysts, because there have been plenty of comments this morning – pointing to technicals and fundamentals – giving reason for the euro to fall even lower.

Based on our research, the euro will continue depreciating.

Jack did a webinar with Mirus Futures on Tuesday that branched off from our update to our popular euro report. You can listen in and watch the PowerPoint slideshow by clicking below:

And with our mindset grounded in Eurozone fundamentals that will lag (at best) the rest of the developed world, we think there are two approaches to take in profiting from a falling euro:

1) Target the longer-term moves, with a less active and more conservative approach, i.e. using currency-related ETFs. There are a few ETFs that offer direct euro exposure.
2) Target short- and intermediate-term moves, with a more active and more leveraged approach, i.e. using the spot FX or currency futures market to directly target the euro/dollar exchange rate moves, up or down.